For Investors Intrigued and Confused by Esports, a VC Fund Opens

(Bloomberg) -- Better ratings than the NBA Finals! Teenage millionaires! A $700 million league! When it comes to the fast-growing world of professional video gaming, there’s plenty of hyperbole. The reality is significantly more slippery, and that can be a problem for investors eager to ride the momentum.

Enter Jens Hilgers, whose 20 years of esports experience make him a senior citizen in the industry. Last year Hilgers launched BitKraft Esports Ventures, the world’s first esports-specific venture capital fund. BitKraft just raised $18.5 million, including $11.5 million from its founders, the rest from big-name investors looking for opportunity amid the noise.

“A lot of people want to say esports is already eclipsing traditional sports,” Hilgers said. “Eventually it will, but let’s not take away our own credibility by pretending it’s happened already.”

Hilgers and his partner Markus Fuhrmann put up $11.5 million of BitKraft’s first fund. The other $7 million came from a handful of other investors, including New York-based Inner Circle Sports, GGV Capital co-founder Hany Nada, and aXiomatic Group, headed by pro sports team owners Peter Guber and Ted Leonsis.

As other deep-pocketed investors toss money at established teams, media rights or sponsorships, BitKraft is looking for something different: early-stage companies in less developed parts of the industry that could benefit from funding or BitKraft leadership’s experience and contacts. For example, BitKraft invested in Runtime.gg, which creates drinks and supplements specifically tailored to the needs of gamers.

In a few years, it might switch to more mature companies with a pre-existing esports foothold, but for now, fledgling companies are the smartest way into the industry, says Inner Circle founder Rob Tilliss. “It’s still so early,” Tilliss said. “When an industry is growing that rapidly, earlier stage investments are better from a risk-adjusted returns standpoint.”

Like social media in its early years, esports has a large following of young people but little clarity around how to turn that popularity into money, said Sumit Gupta, whose 3-D streaming service Boom.tv is part of BitKraft’s portfolio. “For years no one thought brands would advertise on social,” said Gupta, who has also invested his own money in the fund. “And now, obviously that’s totally developed.”

Hilgers, 41, founded Electronic Sports League in 1997 and helped build it into the oldest and largest esports organization in the world. He was CEO of ESL until 2010, and chairman until 2015, when Modern Times Group bought a majority stake for $86 million. He co-owns G2 Esports, a Madrid-based team.

Hilgers believes the industry is nascent enough that BitKraft can have a major impact over the next three to five years. While this first fund was financed by people he already worked with, Hilgers is planning to open the doors again before the end of 2017.

“There’s a window when our information advantage, the advantage we have of being in esports for a while, is biggest,” he said. “Time is pretty critical for us.”

To contact the reporter on this story: Eben Novy-Williams in New York at enovywilliam@bloomberg.net.

To contact the editors responsible for this story: Janet Paskin at jpaskin@bloomberg.net, Rob Golum